Final Lake Cities Proposed Contract

The City Manager brought the terms for the final proposal for the Lake Cities Fire Services Contract to the council July 31, 2012. These are the terms that the City Councils for Lake Dallas and Hickory Creek expressed agreement to in votes the prior week. At this point, the cities of Lake Dallas and Hickory Creek have not signed the Fire Services Contract, although their vote would seem to be an indication that they are willing to do so on these terms.

So what are the terms that have been negotiated? The changes from the original proposal the City of Corinth sent the other towns are primarily revolving around the costs each city is willing to pay. There were also some other minor changes.

AV Property values

Property valuations are very slightly up compared to last year's certified property valuation for the City of Corinth. The certified property valuation reports were published at the end of July. The total property valuation for the city is used to determine the property tax rate necessary for the next fiscal year budget (starts in October 2012).

State law ties the effective tax rate to the comparison of this year's net property valuation in the city with the certified appraised value from last year. Essentially the effective rate is defined to set a rate that would generate the same property taxes overall for the city on existing properties as last year's actual property tax rate generated on last year's certified appraisal value. Of course the law is not actually that simple - it is a convoluted and tortuous path from the two appraisal values to the effective rate for this upcoming year.

The Lake Cities Fire Department

Many of your may already know that the City of Corinth operates the Lake Cities Fire Department. It provides Fire and Emergency Medical services to all four of the 'Lake Cities': Corinth, Hickory Creek, Lake Dallas, and Shady Shores. All four of the Cities provide funding for the Fire Department through interlocal agreements (or contracts).

Corinth MUD #1 Update

The January 24 Corinth MUD #1 board meeting has come and gone - and the board did NOT pass a resolution to dissolve the MUD. I recall that after the City Council voted to dissolve the MUD, and the MUD went out and passed around a petition to reinstate the MUD, the board suggested that if we (the council) would repeal our dissolution ordinance, they would dissolve the MUD on January 24th. They didn't.

Cut taxes, but not my benefits

That seems to be the confusing, and untenable, position of many people today. I just read an article in the NY Times and its accompanying poll that asked questions about how to cut the deficit. It seems that most people understand that you can't just keep borrowing money from the future to pay for things today. However, when asked what they are willing to give up to reduce spending, the answer is "not MY benefits".

Budget 2011 - First look

October first started the 2010-11 fiscal year, and the 2010 budget. Unfortunately there was in increase in the tax rate from .57698 to .59292 which was an increase to the effective rate. Property values declined overall in the city from $1,393,914,517 to $1,368,721,005, about 1.81%. There was also a decline in sales tax revenue at the same time, which is no surprise given how the economy was going.

The Budget - Again

It seems like we just approved the 2010-11 budget... We did - 4 months ago. So now, it is time to begin the process again to have a budget ready at the end of September 2011. The first budget meeting between the council and the city staff generally occurs around mid February, about a month away. At that time Council will receive a best guess as to what resources (taxes and fees) we will have available given current tax rates, then we will have to provide guidance to staff as to how to proceed to prepare the budget.

The budget process is both simple and complex at the same time. It is simple in that by law we cannot borrow money to pay for operations - we can't spend more than we take in. It is complex in that each resident has a possibly different priority for what we should spend money on. It is very simple and easy to grow the budget (just keep adding expenses!) - it is orders of magnitude more difficult and complex to cut the budget.

If the expenditures exceed the revenues (as occurred the last two years), then there are but two choices - reduce the expenditures, or increase the revenues. It has often seemed to me that the choice is made to increase revenues. Property taxes represent about 50% of the city's general fund revenues. Sales tax is only about 7.4%. We have little to no direct control over sales tax revenue - people's spending does that.

So when the city "needs" money to balance the budget, it just increases the amount of property taxes. This often irritates the people who have to pay those property taxes.

To be fair, people expect a certain level of services from a city - that is what the taxes are for, after all. So rather than calling to cut taxes, or cut spending, or increase taxes (or search for new sources of revenue), I propose that we determine what is the proper level of services for the city to provide. What is the required staffing to provide those services, and what is appropriate compensation for the city employees given the state of the non government (private sector) economy?

That is the complex part - every resident has a different opinion of what constitutes the proper level of services from the City. So over the next several weeks, I intend to discuss here each service and department in the city. I will greatly appreciate input about what residents expect, and what they are willing to pay for.

Budget 2010: On Demand Transit Service

Corinth currently offers an "on demand transit" service to seniors and the disabled of any age. Initially a small low cost program, it has become a small extremely expensive program. From a few thousand dollars a year, it is now projected to be over $55,000 for 2010 serving only 12 residents that use it. Per person served, it is over $4,500, compared to just over $640 per person served by all the rest of the city services (police, fire/ems, community services, etc).

With the current budget issues, reduced revenues from sales tax and property values going down, it is hard to justify continuing this expense in my opinion.

You can find out more at my website.

A Glance at the budget evolution for 2010

At a budget workshop in February the City staff began preparing estimates for the 2010 budget based on information available and current in February. At that point we were expecting sales tax to be down 14% compared to budget for the 2009 fiscal year (runs from Oct 2009 to Sep 2010). That would be a drop of 12.3% compared to the 2008-09 year. We were also expecting a 1% drop in property values, and given the same property tax rate, a similar drop in property tax revenue. Licenses, permits, interest income were all expected to be down. In all we expected revenue for 2009 to be down by almost $217,000 or about 1.68% compared to what was planned.

Using that as a starting point, we were expecting revenue for the 2010 fiscal year to be down $354,000 compared to 2009, or about 2.74%. Assuming the same expenditures for 2010 as were budgeted for 2009, that would leave a gap of about $497,500 that had to be made up.

By May 20th, the next budget workshop, the picture had changed, and for the worse. While the sales tax picture had improved from -14% change to -9.77% compared to the 2009 year, the property tax values were now predicted to be down by about 3.5%. Property tax makes up almost 49% of the tax revenues the city generates - sales tax about 7.7%. So you can see that a percent change in property value (and thus property tax) has a much greater impact than a percent change in sales tax revenues. Now projecting $12.3 million in revenues for the 2010 fiscal budget, we would now be close to $900k short. At this point the staff made the first moves to reduce the budget.

The 2009 budget had been adopted at ~$13.2 mil. The city manager and staff had made efforts to begin reducing the spend during 2009, and on May 20, the projected expenses for 2009 were at ~$12.9 mil. By May 20, staff had shaved about ~$17,000 from the budget (net) over 2009. This left us still about ~$600K short for 2010.

The July 8th meeting was little different: at that point, we projected ~$12.4 mil in revenues, had shaved expenditures to ~$12.6 mil, still about $196k short. So some discussions ensued around methods to make up the deficit including a tax rate increase to the effective rate (more on that later), a water franchise fee, and some additional cuts, possibly including the on demand transit service, our part of the Lake Cities library, and various printed communications the city sends out.

By the way, this is all referring to the General Fund. There are several other funds maintained by the city, including utilities, the EDC, Hotel Tax, etc. all of which are "in shape" meaning that there are no deficits in those budgets.

More Later.

A Bit of Good News on the Budget - for now

Both the February and March 2010 sales tax receipts were up compared to those months in 2009. This appears to be the first time in a while. Since January 2008 the sales tax had been steadily dropping compared to the prior year (same month), so this is a welcome change from a budgetary point of view. Obviously it would be nice if this change in direction were to continue, even if only by a modest amount.

This change alone will not correct the budget issues we have been monitoring all year - still, every bit helps.

Help with the Budget?

At the April 1st regular session of the City council of Corinth, Texas we will be considering appropriating funds to expend on projects that will be reimbursed by the Energy Efficiency and Conservation Block Grant (EECBG). When all is said and done it may be possible to remove some budgeted expenditures for the fiscal year because they fall under this grant.

This is particularly good since we are facing a budget shortfall this year due to declining sales tax and permits revenue. At last check, we are expecting a $200,000+ shortfall for this fiscal year (2009-10). Any amount we could carve off of that without dipping into reserves would be a very good thing.

See More on this and the rest of the April first session.

Sales Tax Decline

For the last several years we have been seeing a decline in sales tax revenue for the City of Corinth. There was a 1.1% decline from 2006 to 2007, and then a further 6.5% decline from 2007 to 2008 (our most recently completed budget year - we are currently in the 2009 budget year). We are down 7.6% for 2009 to through January compared to the same period in 2008.

Overall, compared to October through January of 2006 we are down 10% in sales tax revenue for 2009. As you can imagine this has impacts for the remainder of this budget year as well as for the next budget year.

In round numbers our finance department is expecting a $200+ thousand shortfall for this year. This can be absorbed by from the reserves in the general fund. the $520 thousand shortfall projected for next year (2010 budget year) is going to be the real problem if sales tax revenues don't turn around.